As business booms in Denver and its thriving economy continues to grow, a stagnant supply of industrial real estate stock is meeting with unprecedented demand, sending prices skyrocketing. The inflated prices create speculation about how the legalization of marijuana and the green rush factor into the low vacancy rates and record high prices in the warehouse market.
Last week, Mile High Comics listed its headquarters, a warehouse in north Denver, for $1.6 million. The building is valued at just under $200,000 — a discrepancy that is raising a few eyebrows in commercial real estate.
In a letter to his customers, Mile High Comics owner Chuck Riwanski attributes the high price tag to the burgeoning marijuana industry.
“By pure happenstance, both of our buildings are legally zoned for commercial pot-growing operations. Buildings with that zoning here in Colorado have exploded in value over the past 48 months, more than doubling in market value. While pot growers still cannot legally open bank accounts, they have become the most active buyers of commercial warehouse buildings in Denver, usually showing up to closings with sacks of cash.”
Riwanski is right. There is not enough warehouse space in Denver to accommodate all of the grow operations, but this is not as simple as a case of demand exceeding supply.
According to CBRE Industrial Services, an international commercial real estate firm, there is a 3.9 percent vacancy in industrial real estate in Denver, a number that can appear shockingly low when compared to the national average of 9.1 percent. But, all in all, only about 1 percent of industrial real estate is attributed to the marijuana industry.
Bob Costello, owner of Colorado Marijuana Investments and 420 Real Estate Broker, agrees that the cultivation side of the retail marijuana equation is more or less equalized with demand, but only because market forces are superseded by a complicated legal and regulatory landscape. Not only must the property be zoned for marijuana cultivation, but the property owner must also approve it as a usage.
Eligible properties are further narrowed down by the supply of electricity and the business’ capacity to receive large amounts of energy.
“Grow houses use a lot of power and the typical warehouse in the Front Range cannot accommodate such high usage,” Costello says. “The power infrastructure in Colorado and the power suppliers are having difficulty supplying the power that grow warehouses need. Denver never really was a manufacturing center and so the existing inventory of warehouses tend to be meant for storage or distribution — neither of which requires high energy infrastructure.”
In the pioneering days of the green rush, the first businesses to ask and be equipped for more power received upgrades until no more capacity was available at the local sub station. Because cannabis cultivation requires a lot of power, limited access to enough electricity disqualifies many potential warehouses, significantly increasing the prices of ones with power.
The various moratoriums on new recreational dispensaries’ business licenses in the state, including Denver’s recent extension, are also playing heavily into the intensity of the market.
In lieu of new licenses, a secondary market developed in selling licenses. What would cost $5,000 in application fees through the city now comes with a $200,000-plus asking price. In addition to buying the license, the new business will also have to qualify with the state and city, find a qualifying warehouse and a qualifying retail space.
“Right now in Denver, I have a complete business for sale, which includes a retail store, a grow warehouse, a lot a lot a lot of power for sale for $6 million,” Costello says. “It’s what we call a business in a box. All you gotta do is bring the money, get the licenses transferred to your name and you are a full blown business. This only works right now because the market is flat, and the only way to enter it is to have a lot of capital. I have some great buildings available that won’t go for sale because they aren’t attached to a license. Even though the packages are at a premium price, it’s your only option.”